No Rules Rules: Netflix and the Culture of Reinvention

by Reed Hastings

The downside to a high-performance culture is the fear employees may feel that their jobs are on the line. To reduce fear, encourage employees to use the Keeper Test Prompt with their managers: “How hard would you work to change my mind if I were thinking of leaving?”

We’ve been against performance reviews from the beginning. The first problem is that the feedback goes only one way—downward. The second difficulty is that with a performance review you get feedback from only one person—your boss. This is in direct opposition to our “don’t seek to please your boss” vibe. I want people to receive feedback not just from their direct managers but from anyone who has feedback to provide. The third issue is that companies usually base performance reviews on annual goals. But employees and their managers don’t set annual goals or KPIs (Key Performance Indicators) at Netflix. Likewise, many companies use performance reviews to determine pay raises, but at Netflix we base salaries on the market, not performance.

We now do the 360 written feedback every year, asking each person to sign their comments. We no longer have employees rate each other on a scale of 1 to 5, since we don’t link the process to raises, promotions, or firings. The goal is to help everyone get better, not to categorize them into boxes. The other big improvement is that each person can now give feedback to as many colleagues as they choose at any level in the organization—not just direct reports, line managers, or a few teammates who have invited input. Most people at Netflix provide feedback for at least ten colleagues, but thirty or forty is common.

A 360 written report is a good mechanism for annual feedback. But avoid anonymity and numeric ratings, don’t link results to raises or promotions, and open up comments to anyone who is ready to give them.

Leading with context, on the other hand, is more difficult, but gives considerably more freedom to employees. You provide all of the information you can so that your team members make great decisions and accomplish their work without oversight or process controlling their actions. The benefit is that the person builds the decision-making muscle to make better independent decisions in the future.

Therefore, the first question you need to answer when choosing whether to lead with context or control is, “What is the level of talent density of my staff?” If your employees are struggling, you’ll need to monitor and check their work to ensure they are making the right decisions. If you’ve got a group of high performers, they’ll most likely crave freedom and thrive if you lead with context.

If you’ve got high-performing employees, leading with context is best. To encourage original thinking, don’t tell your employees what to do and make them check boxes. Give them the context to dream big, the inspiration to think differently, and the space to make mistakes along the way. In other words, lead with context.

It should be pretty clear by now that at Netflix, with our Informed Captain model, we have a loosely coupled system. Decision making is highly dispersed, and we have few centralized control processes, rules, or policies. This provides a high degree of freedom to individuals, gives each department greater flexibility, and speeds up decision making throughout the company.

I use a handful of methods for setting context across the company, but my primary platforms are our E-staff (Executive Staff) and our Quarterly Business Review (QBR) meetings. A few times a year we bring together all the leaders (top 10 to 15 percent of people) of the company from around the world.

decisions but refer the bigger issues to the higher-ups. But at Netflix, as we’ve discussed, the informed captain is the decision maker, not the boss. The boss’s job is to set the context that leads the team to make the best decisions for the organization. If we follow this leadership system from the CEO all the way to the informed captain, we see that it works not so much like a pyramid but more like a tree, with the CEO sitting all the way down at the roots and the informed captain up at the top branches making decisions.

When one of your people does something dumb, don’t blame that person. Instead, ask yourself what context you failed to set. Are you articulate and inspiring enough in expressing your goals and strategy? Have you clearly explained all the assumptions and risks that will help your team to make good decisions? Are you and your employees highly aligned on vision and objectives?

A loosely coupled organization should resemble a tree rather than a pyramid. The boss is at the roots, holding up the trunk of senior managers who support the outer branches where decisions are made.

Both Google and Schlumberger seemed to have had success keeping a uniform corporate culture around the world. So, with only a bit of trepidation, I felt we could do the same. Like Google, we would seek to hire for fit, selecting individuals in each country who were attracted to and comfortable with the corporate culture we had spent so long cultivating. And like Schlumberger, we would train our new employees in other countries to understand and work in the Netflix way. At the same time, we would seek to be humble and flexible, tweaking our culture as we went and learning from each country we moved into.

The overarching lesson we’ve learned is that—no matter where you come from—when it comes to working across cultural differences, talk, talk, talk. One of the best ways to get better at providing feedback to an international counterpart is to ask questions and show curiosity about the other person’s culture. If you need to give feedback to a counterpart in another country, ask another trusted colleague from that country first, “Does my message sound aggressive?” “What’s the best approach in your culture?”

In less direct countries, implement more formal feedback mechanisms and put feedback on the agenda more frequently, because informal exchanges will happen less often.

Make ADAPTABILITY the fifth A of your candor model. Discuss openly what candor means in different parts of the world. Work together to discover how both sides can adapt to bring this value to life.

But for those of you who are operating in the creative economy, where innovation, speed, and flexibility are the keys to success, consider throwing out the orchestra and focusing instead on making a different kind of music.

In today’s information age, in many companies and on many teams, the objective is no longer error prevention and replicability. On the contrary, it’s creativity, speed, and agility. In the industrial era, the goal was to minimize variation. But in creative companies today, maximizing variation is more essential. In these situations, the biggest risk isn’t making a mistake or losing consistency; it’s failing to attract top talent, to invent new products, or to change direction quickly when the environment shifts.

To build a team that is innovative, fast, and flexible, keep things a little bit loose. Welcome constant change. Operate a little closer toward the edge of chaos. Don’t provide a musical score and build a symphonic orchestra. Work on creating those jazz conditions and hire the type of employees who long to be part of an improvisational band. When it all comes together, the music is beautiful.